Address at the World Trade Center of New Orleans

Good afternoon ladies and gentlemen:

 --I am particularly happy to meet with you today. This is not my first visit to the Queen City of the South. About twenty-five years ago, when I was a student at the University of Pennsylvania, while visiting the southeastern part of the U.S., I drove with my family to New Orleans. I came then with much excitement and anticipation because as a Jazz lover I had to visit the Jazz Capital of the World. As a Brazilian, I have always appreciated the musical ties that bind my country with your city. No Latin American, particularly a Brazilian, feels like a foreigner in your beautiful city. 

New Orleans, a city of many cultures and a gateway to North America, has much in common with Latin America and the Caribbean. Louisiana’s legal system, unique in the United States, is based upon the Napoleonic Code and Roman law, as are all the legal systems in Latin America. Catholicism, the religion of most Latin Americans, has permeated many dimensions of life in Louisiana, the only state in the Union to be divided in parishes rather than counties. New Orleans has always played a principal role in the trade of Central America and the Caribbean and as the headquarters of corporations that have left a lasting and profound influence on those regions’ economies.

The economy of Louisiana, based on gas and oil extraction and refining, tourism, fishing, agriculture, and transportation, thanks largely to the Mississippi River and the port of New Orleans, has a profile that in many respects approximates that of many Latin American countries. And, last but not least, especially for a Brazilian, you have the only Carnival in the world that compares to Rio´s, which reflects the profound similarities in our histories, societies and cultures.

There is much in these commonalities that has worked to our mutual advantage and the potential for further growth in cultural exchanges, trade, investment and transportation is truly extraordinary. In this regard, I am particularly impressed by the great efforts the public and private sectors of Louisiana and New Orleans have made in recent years to enhance trade and investment relations.

The Inter-American Development Bank, as you know, has supported these initiatives in the past and participated in business seminars organized by the World Trade Center and the Chamber of Commerce, as well as in recent Encuentro meetings. I am particularly grateful for the invitation to make New Orleans the site of the IDB's next Annual Meeting, in March of 2000, which should contribute to bringing together representatives from the public and private sectors of the U.S. and Latin America and the Caribbean.

 You have heard from Mr. Dan Martin on how to participate in IDB-financed procurement opportunities. I would like to talk now about two topics: Trade and the economic situation in Latin America and its outlook for the immediate future.

 Trade in the Hemisphere

Trade between Latin America and the Caribbean and the U.S. has shown dynamic growth in recent years. 

Latin American and Caribbean exports to the U.S. grew at an average growth rate of 15 percent per year between 1992 and 1998. As a result, by 1998, the U.S. market accounted for half of the total exports of the region or $147 billion. The importance of the U.S. markets varies within the Americas, as one moves South across the hemisphere it declines. For Mexico, exports to the U.S. account for 88 percent of total exports. For the countries of the Central American Common Market that share is 57 percent, and for the members of the Caribbean Community it is 34 percent. In the case of the Andean Community, 39 percent of total exports have the U.S. market as their destination. Finally, only 15 percent of Mercosur exports go the U.S.

 U.S. exports to Latin America and the Caribbean have also expanded significantly in the 1990s: from $52 billion in 1990 to $140 billion in 1998. As exports to this region have expanded faster than to the rest of the world, the share of Latin America and the Caribbean in total U.S. exports has risen from 13 percent in 1990 to 21 percent in 1998. That is, 1 out of every five dollars of U.S. exports goes to Latin America and the Caribbean. Recall that, in 1997, Mexico surpassed Japan as the second largest market for U.S. exports.

Among the industrializing and developing world, Latin America and the Caribbean has also become one of the largest U.S. export markets. In 1997, when the Asian crisis started to develop, the U.S. exported $8 billion to all of Africa and $128 billion to Asia (excluding Japan), compared to $132 billion to Latin America and the Caribbean. In short, the Latin American and the Caribbean market is becoming the fastest growing market for exports from the U.S.

I should note that the IDB is a strong supporter of economic integration in the region as a way to expand trade, increase competitiveness and diversify exports. Bank-financed programs support trade liberalization, customs reform and regional and subregional trade agreements, all directed to attracting productive investment and gaining access to international markets.

The Bank also contributes to economic integration by supporting the region’s five economic alliances----the Southern Cone Common Market (MERCOSUR), the Latin American Integration Association, the Central American Common Market, the Caribbean Economic Community, and the Andean Subregional Group.

The Bank has provided strong support for initiatives such as the Free Trade Area of the Americas.

Current Economic Situation

Turning now to the economic environment, in the 1990s, the Latin American countries have deepened the economic reform process that began in the 1980s. The reforms were aimed at establishing market-oriented policies that would integrate the Latin American economies into the global economy and generate economic growth. Among other measures, trade barriers were dismantled, financial markets were liberalized, major industries were deregulated, and a large number of state-owned enterprises were privatized. The IDB strongly encouraged and supported the opening up of the Latin American economies, and now is helping the countries in solidifying these reforms.

Growth-oriented domestic policies, the renewal of capital flows into the region, and a growing world economy, combined to produce steady growth for the region as a whole during most of the nineties. In 1999, however, strong external shocks hit the region, which fell into recession experiencing the worst year of the decade. The region’s growth rate declined from 5 percent in 1997 and 2.7 percent in 1998 to a projected zero growth in 1999. However, a number of important features set this slowdown apart from recent experiences:

First, a most salient fact of the 1998-99 slowdown is that it was concentrated in South America only, and not in Central America, the Caribbean, and Mexico. While South American countries had negative or low growth rates during 1998-99, Mexico, the Central American countries and the Caribbean economies continued to grow.

Second, contrary to previous occasions, the current slowdown in South America is not expected to last long. Economic forecasts predict a rapid recovery in the year 2000. Most projections, including the projections made by other international financial institution, have been revised upward and now forecast an annual growth rate between 3 and 4 percent for 2000.

Third, the reform processes that have taken place since the 1980s have been maintained and a consolidation and deepening of reform is high on the region's agenda. This feature contrasts with previous experiences in which recessions gave way to a resistance to reform, high inflation, a rise of protectionism, and a movement away from market-oriented policies. This time, Latin American countries have moved to consolidate market-oriented reforms. The continuation and deepening of the reform agenda is one main factor why forecasts are optimistic for the year 2000.

Fourth, direct foreign investment has continued to flow into Latin America and the Caribbean. There was a significant fall of portfolio capital inflows, but not of direct foreign investment in the region. In fact, foreign direct investment financed most or all of the 1999 current account deficits in Brazil, Mexico and other countries.

In the 1990’s net inflows to the region rose from $8.2 billion in 1990 to $61.4 billion in 1997. Although the international financial crisis has had an impact on other forms of capital flows, inflows of foreign direct investment to the region have held up well at the level reached in 1997 or only slightly lower. In the current decade, 60 percent of the flows of direct foreign investment into Latin America came from the U.S. Although the participation of European investment has risen sharply in recent years, the U.S. continues to be a major source of such flows.

Perspectives for 2000

We are optimistic about Latin America's recovery.

One factor is the expectation that austere policies will help to reinstate growth by establishing macroeconomic balance. Monetary and fiscal discipline have been maintained and policies are expected to be austere while recovery evolves next year.

Countries and international institutions are involved in an ongoing coordinated effort to reduce financial vulnerability. Countries have taken measures to lengthen the maturity of their debts, strengthen banks and financial institution balance sheets, improve bank supervision, require greater accountability for public and private financial institutions, and other measures of making economies stronger and less vulnerable to external events.

The ongoing efforts to improve the international financial architecture should reduce distortions that accentuate financial disturbances and the volatility of capital flows. These efforts include the implementation of the new fiscal, monetary and financial transparency codes. These and other measures aim to facilitate financial decisions, alleviate moral hazard problems leading to risky investments, and correct failures of the international financial architecture that accentuate financial vulnerability.

The anticipated recovery is also based on positive forecasts of favorable external terms of trade developments. In fact, commodity prices have increased and are expected to be favorable to Latin American economies next year.

In conclusion, I would like to encourage the business community of Louisiana, and the neighboring states, to be our partners in the development of Latin America and the Caribbean and in building stronger and mutually advantageous ties.

Many thanks for coming today and we hope to see you at the Bank's Annual Meeting in March 2000.